Climate change puts insurers to the test

The Bank of England’s Prudential Regulation Authority has begun its latest stress test for general and life insurers. This biennial exercise tests the insurance industry’s market resilience to physical events of the sort that have garnered a lot of media coverage in recent years: hurricanes, earthquakes, tsunamis, windstorms, floods. It also includes two new risks: climate change and cybersecurity.

The Bank of England requires companies to consider how certain climate-related scenarios would affect their business, each with transition risks as economies decarbonize and meet the climate targets of the Paris Agreement and physical risks.